By: Rajendra Dichpally (National General Secretary – Indian Overseas Congress)
Public Sector undertakings had been the pride of India because they provided impressive infrastructure for the country’s development, employment to millions, defense goods, dividends to the government to meet budgetary support, food security, and reduced hunger and inequality in the country. They worked great at those places where the private sector had failed. Since they worked for the public to achieve the goals discussed in sentence one, profit was never the yardstick of their achievements, though many of them earned impressive profits. Such profitable companies were named nav ratnas (nine gems in English) and maharatnas (very highly precious gems) by the government of India.
When the Modi government came to power in May 2014, they introduced disastrous fiscal policies and committed several blunders which killed almost all industries including PSUs but benefitted his cronies because they got special favors from the fiscal policies. The first such blunder was the demonetization of November 2016, which virtually strangulated the entire economy of India for months. However, Modiji’s crony Vijay Shekhar Sharma of Paytm became from pauper to $ billionaire overnight because he got 350 million customers at one verbal order of Modiji forcing everybody to use his system of payment instead of cash. The second blunder was the faulty enactment of GST on July 1st, 2017. This act increased compliance work of companies tremendously and required a down payment of GST amount at the time of shipping goods whose collection from customers would come back after months. This immensely increased the need for cash on which the companies needed to pay interest and thus reduced the profitability of all industries but brought opportunities for Modi’s cronies such as Mukesh Ambani’s JIO provides JIO GST Solutions. Many small and medium enterprises that could not sustain this burden closed down. The final economic blunder was the COVID-19 lockdown in March 2020 which drastically curtailed most economic activities and cut their earnings, but JIO’s subscription and his online shopping app JIOMart App flourished. Then Serum Institute of India CMD Dr. Cyrus Poonawalla’s (a Modi crony) fortunes jumped to $16 billion by writing this article. Apart from these general modus operandies of weakening all others along with PSUs and enriching his cronies, the Modi government adopted specific policies directed at PSUs exclusively first to kill them and then sell them at throwaway prices to his cronies.
The first such policy is that the Modi government forced healthy PSUs to bail out loss-making PSUs. For example, the Modi government forced ONGC to buy a barren gas block of Gujrat State Petroleum Corporation (GSPC) for Rs.8000 crores. In another move, the Modi government forced ONGC to buy in an off-market deal the loss-making Hindustan Petroleum Corporation Ltd (HPCL) for Rs.36.915 crores. Many unviable banks have been merged with healthy banks. Instead of getting rid of loss-making PSUs which happened mainly because of the Modi government’s faulty fiscal policies, the Modi government forced their merger with healthy PSUs and thus made healthy PSUs sick too. Instead of providing budgetary support to ailing PSUs so that they become viable, the Modi government has been busy preparing even healthy PSUs to become sick so that they can be sold to his cronies at deep discounts.
The second disastrous policy for PSU is that the Modi government, after spoiling its own revenue sources through taxes, pressurized the PSUs to pay more dividends. For example, the Modi government ordered ONGC to pay Rs. 7764 crores in 2016-17 and Rs. 8470 crores in 2017-18. LIC paid Rs. 2697 crores during 2019-20 which ideally belonged to policyholders as you never know when a calamity like COVID-19 can happen and require LIC to pay large sums to relatives of the deceased. For its policyholders, LIC had reserved the remaining surplus of Rs 51,257.12 crores during the same period.
The third disastrous policy for PSUs had been that the Modi government forces them to buy back their own shares. Under such pressure from the Modi government, ONGC did a share buyback for Rs.4022 crore under which a percentage of government holdings were technically transferred to the company. The forced share buybacks from 11 PSUs—Coal India, NTPC, NALCO, NMDC, NLC, BHEL, NHPC, NBCC, SJVN, KIOCL, and even from a cash-strapped HAL—fetched Modi Government another ₹1,03,000 crore. A share buyback is nothing but another name for extracting cash dividends from the unwilling PSUs.
The fourth route to drain PSUs of their cash is to issue new initial public offerings (IPOs). Presenting the Union Budget on February 1, 2021, Finance Minister Nirmala Sitharaman affirmed that all the announced disinvestment proposals including the LIC IPO would be completed this fiscal. She had first made the mega announcement of the IPO in the last year’s budget. However, the reserves of LIC belong to policyholders, and not to the Modi government. But Modi’s government is simply bent upon robbing all and filling the pockets of his cronies. Previously, new PSU IPOs have been launched in a such senseless manner that they flopped at the stock market where the market price per share sunk far below the issue price leading to heavy losses creating favorable conditions and enough justification for private corporates to grab them throwaway prices.
The fifth route is PSUs disinvestment through mutual funds and exchange-traded funds (ETFs). In disinvestment through the ETF route, the government sells its equity holdings in select PSUs to a fund company that runs an ETF mirroring a readymade index. After that, the ETF sells units in this readymade portfolio to thousands of public investors to partly own the basket of PSU stocks being offloaded by the government. However, the ETFs are run by Modi’s cronies such as the CPSE ETF, managed by Reliance Nippon Mutual Fund, which tracks the Nifty CPSE Index made up of 11 PSU stocks from the energy, metals, financial services, and industrials space. The Bharat 22 ETF, managed by ICICI Prudential Mutual Fund, features 22 companies drawn from 11 different sectors, with private sector firms such as L&T and ITC thrown in. Then the Employees Provident Fund Organization (EPFO), a statutory body under the Ministry of Labor was forced to invest workers’ money in CPSE ETF and got returns of a pathetic 1.89% while it has to pay 8.5% interest to the workers on their EPF savings. The trade unions rightly protested the EPFO’s decision well in advance. In all, using ETFs including that of Anil Ambani, Modi Government raised Rs.48,325 crore through all ETFs. The Department of Investment and Public Asset Management (DIPAM) Joint Secretary Venudhar Reddy Nukala revealed that in 2018–19, LIC and PSBs were asked to invest ₹25.000 crores in ETFs trading in PSU stocks. This is how Modi Government has been sucking the PSUs dry so that they get the excuse of loss-making units to sell at throwaway prices to their cronies.
The sixth route is the outright sale of PSUs. Finance Minister Arun Jaitley had announced that the government raised Rs.85,000 crore through disinvestment in 2018–19. The trend has continued and increased. Ms. Nirmala Sitharaman has targeted Rs.1.75 lakh crores from disinvestment in her latest budget on February 1, 2021. Apart from this, the Modi government has finalized a plan even to monetize the land and other assets of PSUs like Air India and BSNL which are located in the most expensive part of metropolitan cities by appointing the Department of Investment and Public Asset Management (DIPAM) as the executioner.
To conclude, we can say that the ineptitude of the Modi government in managing a sound fiscal policy having enough budgetary sources of income, and the greed of his cronies to privatize PSUs at throwaway prices, is taking the country in the dangerous direction of bankruptcy, poverty, and inequality through stunted or even negative GDP growth. Once the sale of all PSUs has been completed, even Modi’s cronies cannot survive under such calamitous fiscal policy. Privatization with the professed goal to achieve efficiency and wealth creation under such circumstances is just a joke.